NICOSIA, July 4 (Reuters) - The cost of bailing out Cyprus'
banks, weakened by exposure to Greece, could hit 10 billion
euros, a newspaper reported on Wednesday, referring to
preliminary estimates by IMF officials visiting the island.

The figure, cited by the well respected daily newspaper
Phileleftheros, is in line with initial estimates of the total
cost of rescuing the island's economy.

If confirmed, it would thus represent a sharp jump in even
pessimistic estimates of how much fresh cash the banks alone
would need.

It would also raise issues of debt sustainability, given
Cyprus' annual economic output stands at just 17.3 billion euro
GDP.

The Central Bank declined to comment, describing any figures
mentioned in the press as "purely speculative".

A team of IMF, European Commission and ECB officials arrived
on the island on Monday and started consultations on Tuesday.
The assessment on banks was made by another IMF team already on
the island, which briefed the central bank on Tuesday,
Phileleftheros said.

Cyprus's two major banks booked substantial losses from
writedowns in the value of holdings of Greek sovereign debt,
taking a 4 billion euro combined hit.

Cyprus Popular has now been effectively
nationalised with a 1.79 billion euro recapitalisation from the
state, and Bank of Cyprus has requested 500 million
euros in state aid.

Fitch had last week said the recapitalisation costs of
Cypriot banks could be in the region of 6 billion euros, but
acknowledged the estimates were subject to uncertainty and were
conservative.

In making its assessment, the IMF was taking into
consideration higher provisions of banks for non-performing
loans. It was considering loans as such for 90 days-plus of
repayment delays even if they were backed by collateral,
Phileleftheros said.
(Reporting By Michele Kambas; Editing by John Stonestreet)